IAS 39 and Biases in the Risk Perception of Financial Instruments

Jannis Bischof () and Michael Ebert ()
Additional contact information
Jannis Bischof: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim
Michael Ebert: Universität Mannheim, Postal: Schloss, D-68131 Mannheim

No 07-73, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: There is a wide variety of reporting choices when presenting and disclosing financial instruments under IFRS. Behavioral theory suggests that the label under which a financial instrument is presented affects the risk perception of investors. We analyze in an experimental setting how and why the reporting choices under IAS 39 and IFRS 7 affect an investor's risk perception. We find that companies presenting the fair value category are perceived to be of a particularly high risk but that the perceived risk decreases when investors learn that the fair value category does not contain derivatives. We conclude that investors cognitively view each measurement category to be representative for a certain type of financial instrument and that they base their risk evaluation on this representativeness heuristic. This conclusion is also suggested by the statistical association of the risk evaluation with behavioral variables describing how familiar an investor is with financial investments and how strongly he is aware of past negative outcomes of certain investments.

Pages: 23 pages
Date: 2007-12-13
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sfb504.uni-mannheim.de/publications/dp07-73.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:xrs:sfbmaa:07-73

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim Contact information at EDIRC., Sonderforschungsbereich 504, University of Mannheim
Bibliographic data for series maintained by Carsten Schmidt ( this e-mail address is bad, please contact ).